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Iraq-Iran Oil Swap Deal To Run For 1 Year

The oil swap deal that Iraq and Iran agreed to last week will run for one year and is subject to renegotiation, Iraq’s Oil Minister, Jabbar al Luaibi told media. The deal envisages the swap of up to 60,000 bpd of crude oil, with the Iraqi oil coming from the Kirkuk field in northern Iraq, which until recently was under the effective control of the Kurdistan Regional Government.

After the Iraqi offense against Kurdistan following an independence referendum that Baghdad rejected, the central government of the country resumed control of the Kirkuk field, but no oil flowed from it. Now, Baghdad will transport between 30,000 and 60,000 bpd of Kirkuk crude by tanker trucks to the border with Iran, at Kermanshah. In exchange, Iran will supply the same amount of similar-grade crude to Iraq’s southern ports.

In the future, the partners plan to build a new pipeline from the Kirkuk field to the border with Iran, to replace the tanker trucks. This suggests that although the initial term of the deal is just one year, there are plans to make it a longer-term deal.

This new pipeline, Reuters notes, could replace the current Kirkuk-Ceyhan infrastructure, which is the main channel for exporting Kirkuk crude oil, to Turkey and the Mediterranean. Iraq will also build a new pipeline along the Kirkuk-Ceyhan route to replace a badly damaged section of the existing infrastructure.

Related: Is This The Top Of The Oil Market?

Baghdad has asked BP to evaluate the Kirkuk field, which is one of Iraq’s largest, in order to find ways to increase production to over 700,000 bpd. The field contains an estimated 9 billion barrels of recoverable crude oil, according to BP.

Iraq is the second-largest crude oil producer in OPEC, and it agreed to slash 210,000 bpd from its production under the original supply cut agreement that the cartel closed with Russia and 10 other producers last year. The country has been unable to comply with this quota, but OPEC’s number-one Saudi Arabia has been cutting more than it agreed to in order to make up for this and for other members pumping more than their share.

By Irina Slav for Oilprice.com

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